A Much Needed Look at Glenn Youngkin's "Business Experience"

Glenn Youngkin's gubernatorial campaign ads stress his business experience and are aimed to give the unaware the impression that he built a traditional business.  Such is not the case.  The Carlyle Group, which Youngkin headed  and made a $260+ million fortune in the process, is a private equity fund catering to very wealthy investors (including some unsavory ones).  As a lengthy piece in the New York Times  private equity funds have an aim of avoiding the payment of taxes - often by legally questionable means - and unfortunately are not regularly audited by the IRS.  The Security and Exchange Commission's website provides this description of the unregulated nature of private equity funds:  

Although a private equity fund may be advised by an adviser that is registered with the SEC, private equity funds themselves are not registered with the SEC.  As a result, private equity funds are not subject to regular public disclosure requirements.   

Does Virginia need a man as governor who made a career of further enriching the very wealthy and, in my opinion, possibly cheating the government out of taxes (I am not stating that Carlyle Group definitely did this and refer readers to the Times story highlights below)?  I would argue "no", especially when combined with Youngkin's far right Christian from The Family Foundation.   Here are highlights from the Times: 

There were two weeks left in the Trump administration when the Treasury Department handed down a set of rules governing an obscure corner of the tax code.

Overseen by a senior Treasury official whose previous job involved helping the wealthy avoid taxes, the new regulations represented a major victory for private equity firms. They ensured that executives in the $4.5 trillion industry, whose leaders often measure their yearly pay in eight or nine figures, could avoid paying hundreds of millions in taxes.

The rules were approved on Jan. 5, the day before the riot at the U.S. Capitol. Hardly anyone noticed.

The industry has perfected sleight-of-hand tax-avoidance strategies so aggressive that at least three private equity officials have alerted the Internal Revenue Service to potentially illegal tactics, according to people with direct knowledge of the claims and documents reviewed by The New York Times. The previously unreported whistle-blower claims involved tax dodges at dozens of private equity firms.

But the I.R.S., its staff hollowed out after years of budget cuts, has thrown up its hands when it comes to policing the politically powerful industry.

One reason they rarely face audits is that private equity firms have deployed vast webs of partnerships to collect their profits. Partnerships do not owe income taxes. Instead, they pass those obligations on to their partners, who can number in the thousands at a large private equity firm. That makes the structures notoriously complicated for auditors to untangle.

People earning less than $25,000 are at least three times more likely to be audited than partnerships, whose income flows overwhelmingly to the richest 1 percent of Americans.

The consequences of that imbalance are enormous.

By one recent estimate, the United States loses $75 billion a year from investors in partnerships failing to report their income accurately — at least some of which would probably be recovered if the I.R.S. conducted more audits. That’s enough to roughly double annual federal spending on education.

It is also a dramatic understatement of the true cost. It doesn’t include the ever-changing array of maneuvers — often skating the edge of the law — that private equity firms have devised to help their managers avoid income taxes on the roughly $120 billion the industry pays its executives each year.

When it comes to bankrolling the federal government, the richest of America’s rich — many of them hailing from the private equity industry — play by an entirely different set of rules than everyone else.

The result is that men like Blackstone Group’s chief executive, Stephen A. Schwarzman, who earned more than $610 million last year, can pay federal taxes at rates similar to the average American.

The private equity industry, which has a fleet of almost 200 lobbyists and has doled out nearly $600 million in campaign contributions over the last decade, has repeatedly derailed past efforts to increase its tax burden.

“If you’re a wealthy cheat in a partnership, your odds of getting audited are slightly higher than your odds of getting hit by a meteorite,” Mr. Rettig said. “For the sake of fairness and for the sake of the budget, it makes a lot more sense to go after cheating by the big guys than focus on working people.” Yet that is not what the I.R.S. has done.

Private equity firms already enjoyed bargain-basement tax rates on their carried interest. Now, Mr. Polsky wrote, they had devised a way to get the same low rate applied to their 2 percent management fees.

In a nutshell, private equity firms and other partnerships could waive a portion of their 2 percent management fees and instead receive a greater share of future investment profits. It was a bit of paper shuffling that radically lowered their tax bills without reducing their income.  The technique had a name: “fee waiver.”

“It’s like laundering your fees into capital gains,” said Mr. Polsky, whose paper argued that the I.R.S. could use longstanding provisions of the tax code to crack down on fee waivers. “They put magic words into a document to turn ordinary income into capital gains. They have zero economic substance, and they get away with it.”

The arrangements all had the same basic structure. Say a private equity manager was set to receive a $1 million management fee, which would be taxed as ordinary income, now at a 37 percent rate. Under the fee waiver, the manager would instead agree to collect $1 million as a share of future profits, which he would claim was a capital gain subject to the 20 percent tax. He’d still receive the same amount of money, but he’d save $170,000 in taxes.

One would have to live in a fantasy world to believe Youngkin would look out for average Virginians if he were to win the governorship in November.